In my consulting practice, I often work with entrepreneurs who own dropship e-commerce stores and are struggling to expand. Dropshipping as a business model is getting harder and harder – margins are compressing, niches are getting crowded, and everyone is in a brutal price war with Amazon. As a result, many dropshippers are finding it increasingly difficult […]

In my consulting practice, I often work with entrepreneurs who own dropship e-commerce stores and are struggling to expand. Dropshipping as a business model is getting harder and harder – margins are compressing, niches are getting crowded, and everyone is in a brutal price war with Amazon. As a result, many dropshippers are finding it increasingly difficult to grow top-line revenue, and are looking for ways to grow the bottom-line instead by expanding margins.

One of the best ways for a dropshipping business to expand margins is to do the one thing they’re all scared to do – take on inventory. Although it seems scary, taking on inventory is actually one of the easiest and lowest risk ways to make more profit quickly. In this post, I’ll break down some of the reasons why carrying inventory is a no-brainer home run for most established dropshippers:

You already know which products move. You have months or years of sales data gleaned from dropshipping these products from your store. You can say with nearly 100% confidence that if you buy X units of your top 10 bestsellers, they will sell in Y months – because they’ve been moving at that rate historically.

Your margins will double overnight. Standard dropship margins are 20% and sliding toward 15%. And that’s before you pay credit card fees and all your other fixed costs. When you buy a product wholesale, you’ll typically get 40-50% off retail price – on the exact same products you’re already selling.

You already know all the vendors. You don’t need to spend days researching to find a good and trustworthy vendor, because you’re buying from them already – they’re your existing dropship partners. Simply call them up and say “we are interested in buying wholesale in addition to the existing dropship business we do together.”

Outsourced fulfillment is easier than ever. It used to be that carrying inventory required a warehouse, staff, and losing several fingers to a tape gun. In today’s world, you can outsource all of that to a 3rd party fulfillment provider like Shipwire. That means your suppliers will ship inventory directly to your outsourced warehouse, and as the orders come in you simply tell the warehouse to ship them out. And that’s the beauty of it – with outsourced fulfillment, carrying inventory feels like dropshipping (with better margins).

Part of the Elements Brands section in our third party warehouse

Put all of the above together, and you’ll realize that your life and business don’t actually change that much – you’re still selling the same products from the same vendors, except now you’re “dropshipping” from your own warehouse instead of someone else’s.

Once you make the decision to start carrying inventory, there are a few questions you’ll probably end up asking yourself:

Which products should you carry? It’s easy to think of carrying inventory as an all-or-nothing proposition, but in reality, beginning to carry inventory does not mean abandoning the dropshipping model entirely. My rule of thumb is that you should start by carrying the products that make up the top 10-20% of your revenue, but cap it at 5 items to start. Continue dropshipping the rest as you do today. That lets you capture the largest opportunity for margin improvement, with the least complexity as you get used to carrying inventory. The easiest way to manage this is to simply set yourself up as a dropshipper in whichever software you’re currently using to manage your orders.

How much inventory should you buy? This will depend on several factors, mostly each item’s velocity (how fast it sells) and the minimum wholesale order required by your vendor. Most vendors require that you purchase at least a certain amount of product to get wholesale pricing – so try to balance that against each item’s velocity and take no more than 6 months of inventory into stock if possible.

How much will it cost? The biggest drawback to carrying inventory is that you have to “tie up” money in the inventory on your shelves. That’s typically money you will never get back, because you’ll have to buy the next round of inventory while your current inventory is still selling so you don’t run out of stock – there will always be inventory on your shelves. You can estimate how much cash your inventory will tie up by calculating your average inventory value. If an item costs you $100 at wholesale and you must buy 100 pieces – that’s $10,000 total of total upfront investment to buy the inventory. That means your average inventory value will be $5,000 for that item (because you’ll be at an average of 50% in-stock all the time). So you’ll have to pony up $10,000 upfront, and $5,000 of that will be sitting on your shelves for as long as you carry that product. Note also that if your sales volume increases and you start buying 200 units at a time (a $20,000 order), you will require an additional $5,000 of capital because your average inventory value has increased to $10,000.

The last point is the most common reason dropshippers shy away from carrying inventory – it requires capital upfront. Still, it’s an investment that pays back very quickly, because your margins instantly more than double from 15-20% to 40-50%. Almost all of that drops straight to your bottom line. If you’re having trouble coming up with the money for inventory, call your local bank and ask their business banker about an inventory loan. You’ll be surprised at the generous terms they’ll offer, and the interest will be more than covered by your increased margin.

Obviously there are a ton of strategies for expanding your dropship business, but it’s my opinion that adding inventory is one of the highest leverage and lowest risk strategies you can implement. If you own a dropship store, give yourself a Christmas present this year and ask your suppliers about buying wholesale.

]]>http://rebelceo.com/increase-margins-carrying-inventory-dropship-business/feed/0How to Deal with Too Much Emailhttp://rebelceo.com/how-to-deal-with-too-much-email/
http://rebelceo.com/how-to-deal-with-too-much-email/#commentsMon, 20 Oct 2014 22:34:58 +0000http://rebelceo.com/?p=1934Like many people, I get way too much email. You probably do, too. Until recently, I didn’t have a good system for dealing with my inbox volume, which was nearly 500 messages per day. That’s nearly one every waking minute! I’ve tried in the past to use the “batching” technique and only check emails every […]

]]>Like many people, I get way too much email. You probably do, too. Until recently, I didn’t have a good system for dealing with my inbox volume, which was nearly 500 messages per day. That’s nearly one every waking minute!

I’ve tried in the past to use the “batching” technique and only check emails every so often, but I found that this just leads to email procrastination, while important messages go unanswered (for further thoughts on my attempts to prioritize email, read “The Urgent vs. Important Matrix”).

A CEO friend of mine emailed recently asking for my best tips for dealing with too much email, and below are the tips I shared with him. I continue to struggle with email overload, but here are a few things that have worked for me to lighten the load a bit.

Push as much to the phone as possible

I know this is counter-intutitive, but when you’re drowning in email, it helps. I train all my employees and folks I work with outside the company that if you can wait 1-2 days for a response or it’s just an FYI, email is OK. Anything more urgent than that should be communicated by phone.

This way, there’s nothing urgent in your inbox and you can put it aside to get work done. Urgent things interrupt you with a ringing phone and you can deal with them. You’ll also find that people tend to solve their own problems when they know that they’d have to speak to the boss live (oh the horror) instead of just dropping an email. This is probably my best hack for dealing with too much email.

Signup for an outsourced personal assistant service

Signup for Fancy Hands (referral link – gets you 50% off the first month) and use them to take care of all the time sucking “life” tasks that you don’t want to deal with – call Comcast to fix my bill, make a doctor appointment, order flowers and arrange for pickup on Valentines Day, check Yelp to find a good mechanic, etc. I just use their “Starter” package ($30/mo for 5 tasks), which is plenty of tasks and more than worth the money. They’ll also rollover any unused tasks.

The biggest thing here is to train yourself to think to use Fancy Hands before doing a task yourself (or simply not doing it). Never waste 45 minutes of your life on hold again.

Track all your open loops

“Waiting on Me” – this is the full list of stuff I have to do or handle before the project or task can move forward. Examples of tasks on this list might be “compile monthly financial statements”, “run payroll”, or “decide on supplier for new product”.

“Waiting on Others” – anytime I send an email that requires a response, I create a card on the “Waiting on Others” list. That gets it off my mental plate, but prevents me from forgetting that I’m awaiting a response from someone else on that issue. Out of inbox, out of mind.

“Today” – each night I review the “Waiting on Me” list and move the most pressing issues to the “Today” list. The next morning I wake up and know exactly what to do. Nothing else gets done until I knock off the “Today” list. The key is not to be too ambitious, so you can clear the list each day. Over several days, your “Waiting on Me” list should dwindle to zero.

Enable your out-of-office reply on vacation AND on weekends

…even if you’re going to respond anyway. This sets an expectation that you can later exceed (or not) if you choose. Important emails can still be responded to, but most people will expect to wait until your return for a response – and often solve the problem on their own before then.

Use a “Sent from my mobile” signature

I add “Sent from my mobile, please excuse my brevity” to the bottom of my cell phone email signature, and sometimes my desktop signature too. This gives you a social acceptable response to be brief, which lets you bang out responses faster and without feeling compelled to include “filler” language.

Above all, manage expectations

I find that handling email overload is as much about tempering expectations on the other end of the email as actually responding. You’ll find that if people think they’re not going to get an immediate response from you, they often try to solve their own problems and move the ball forward on their own – meaning you never have to reply at all. There’s nothing better than getting a second email that says “never mind, I figured it out”.

What are your tips for managing email?

Email overload is a problem we all have, so I’d love to hear from you – what are your best tips for handling email overload? Leave ‘em in the comments section below – anyone that can improve upon my system wins a prize.

For many aspiring entrepreneurs (especially readers of Tim Ferriss’s 4HWW), the “digital nomad” lifestyle is the holy grail. And it sounds great – globetrotting, living on a beach in Thailand, working a few hours a day from your laptop, running your business through a 4G modem. And I must admit that I spent a few […]

For many aspiring entrepreneurs (especially readers of Tim Ferriss’s 4HWW), the “digital nomad” lifestyle is the holy grail. And it sounds great – globetrotting, living on a beach in Thailand, working a few hours a day from your laptop, running your business through a 4G modem. And I must admit that I spent a few years of my life trying to do the same thing. But there’s one thing I’m finding out as I mature as an entrepreneur and a human being – our digital nomad culture often focuses too much on building a lifestyle, rather than a life.

Yes, Thailand is gorgeous. It’s an incredible spot for a vacation, it’s comparatively cheap when you earn in USD, and you can post pictures on Facebook that will make all your friends ultra jealous. But for most, Thailand isn’t a permanent lifestyle – you’re going to land in Bangkok, go sit on a beach, and two weeks later you’re going to realize that you’re still you. All your challenges, your aspirations, your demons – your life is sitting right there next to you on that beach.

Hiking in Cinque Terre, Italy

I think as an entrepreneurial community, we are selling people a dream that’s partially hollow. “You too can create an affiliate website and then move abroad and be happy forever! Just buy my e-book…” And for sure, the digital nomad lifestyle is FUN! A lot of fun. Thailand is fun. Globetrotting is fun. But I think it’s about time for some real talk about the difference between fun and happiness. As my friend Dave Craige says, “Happiness and contentment do not come from external things like parties and beaches. They come from the inside.”

Last year, I spent 3 weeks traveling through Italy with my family. It was easy to do – I brought my Macbook Air, grabbed wifi where I could, and the business continued to run without a hiccup. But by the end of those 3 weeks, I was ready to be back home. Not ready in a homesick way, ready in an excited way. I had meetings scheduled with other awesome entrepreneurs, had a factory visit planned, and dinner with my wonderful girlfriend at our favorite local sushi joint. These are things you don’t get when you’re a digital nomad.

For me, I’ve realized that you don’t need to move abroad in order to be “doing it right” as a location independent entrepreneur. Being location independent for me is becoming more about having the freedom to do the things I want to do and go the places I want to go, while still having a home base here in the USA.

Sailing with my brother off the South Carolina coast

I feel like the digital nomad community dramatically undersells the US as a place to live. Beyond the basic amenities like unlimited clean drinking water and excellent hospitals, we have some of the most incredible geography in the world. In just the past year, I have: spent three weeks on a remote beach in South Carolina with 4 entrepreneur friends, hiked to the top of Angel’s Landing in Zion National Park, skied some of the best terrain in the world at Telluride, listened to live jazz in New Orleans, climbed to the top of the Empire State Building, and sipped wine in the hills of Sonoma. No passport needed, and I’m still around enough to nurture relationships with my girlfriend, my family, and my friends. And it’s hard to put a price on that.

So to all the current and aspiring digital nomads and 4 hour work weekers out there – let’s shift the conversation and weave “happy” into our aspirations together with “fun”. Let’s stop chasing ghosts around the globe, and give ourselves permission to build lives in addition to just lifestyles.

Lots has been written about how e-commerce is taking over traditional retail and that all commerce is moving online. But the truth is, as an e-commerce retailer, you’re inherently at a disadvantage against all the stores at your local mall. They have something you’ll never have – a tactile, real-world product experience. Walk into Nordstroms […]

Lots has been written about how e-commerce is taking over traditional retail and that all commerce is moving online. But the truth is, as an e-commerce retailer, you’re inherently at a disadvantage against all the stores at your local mall. They have something you’ll never have – a tactile, real-world product experience. Walk into Nordstroms and you can touch, feel, and try on the merchandise. You speak with a friendly sales person. All of this comes together to create a cohesive, high-fidelity shopping experience. You don’t have any of these advantages online.

There are plenty of ways to improve your customer experience as an online retailer, but nothing touches your customer quite as strongly as the experience they have when they first open their shipping box and find the products they ordered inside. Is there a better feeling in the world? You research a purchase, order it online, and wait days (or weeks) for it to arrive. You track the package online. You wait by the door for the UPS guy.

Most online stores neglect the first (and usually only) physical interaction they have with the customer – their shipping and unboxing experience.

That doesn’t just mean shipping speed, I’m talking about the unboxing experience. The unboxing is the first experience they have with your product after they’ve paid you for it. Before they even hold it in their hands, they’re experiencing your brand – what kind of box does it come in? When they open the box, what do they see first? What does the packing slip look like? You can really delight a customer with a great unboxing experience, and it adds so much value to their entire interaction with your brand. Yet it’s overlooked by so many e-commerce stores.

Amazon Gets It

Jeff Bezos (founder/CEO of Amazon.com) created the most successful e-commerce retailer of all time, and he intimately understands the value of the tactile customer experience. He says:

“The physical world is the best medium ever invented and betting against it has always proved wrong.”

That’s why you see Amazon investing millions into their Amazon Prime program to give customers a delightful and fast shipping experience. That’s why everything you get from Amazon comes in a custom printed box with custom printed Amazon packing tape. Amazon has even forced some companies (like Logitech) to redesign their entire packaging to be easily unboxed (Amazon calls it “Hassle Free Packaging”). This has been so successful that a Prime customer spends about 10x as much as a normal customer – and the primary marker of the Prime experience is an excellent shipping experience.

So many e-commerce store owners out there obsess over A/B testing their websites, they optimize their email campaigns, but they totally ignore the way the customer experiences their product once they actually get it. Follow up drip email campaigns are great, but a package is tactile.

So how do you do the unboxing experience well? Let’s look at a few examples of people who are doing it right.

Bonobos

Bonobos is an online brand of tailored mens pants and shirts that are really stellar. They’re a pioneer in e-commerce all around, but specifically, they also have a great shipping experience. Fast and free shipping, a branded box, product wrapped in tissue paper sealed with a sticker, and an included return label, just in case you want to return anything.

In fact, the Bonobos unboxing experience is so good that people are literally posting Bonobos unboxing videos on their blogs. Unboxing videos for pants. Not a new iPhone – pants!

A Personal Example

We sell high quality, highly organic skin care products to a discerning customer base. Our customers do their research and then willingly pay more for a high quality product. They’re treating themselves, and we want to remind them of that. So every box we ship comes wrapped inside with gold tissue paper, and is sealed with a branded sticker and a sprig of lavender. When you open the box, it looks like there’s a present inside – a present to you. People LOVE it, and it gets mentioned in our online reviews all the time.

Bonus example: Whipping Post

Whipping Post makes beautifully designed leather goods. They’re high end products that are a bit pricier than most, but they make up for it with an awesome unboxing experience. You can click here to see the full gallery, or I’ve included a sneak peek below:

For the skimming crowd, here are a few easy ways you can create an awesome unboxing experience at your own store:

Make custom shipping boxes. They’re typically almost the same price as generic brown, and add a ton to the experience. My friend Taylor Llewellyn is the founder of Tucker Blair (needlepoint belts) and Kona Kase (goody box for runners). Both times he’s done an excellent job of making beautiful, branded custom boxes.

If you do your own fulfillment, write a handwritten note on your packing slip. This takes 10 seconds to do and people LOVE it, especially if you address the customer by name and the packer signs their own name. It can be as simple as “Annie – I hope you enjoy our stuff! – Bill” or a seasonal message like “Happy Easter Annie! – Bill”. It creates a great personal feel.

Rewrite the copy on your packing slip – take something boring and include some on-brand copy. Dollar Shave Club does a great job of this (see the link above).

Include a freebie – a free sample or a small/cheap tchotchke. If you’re in food or personal care, samples can also be a great way to give a customer something for free while also introducing them to a logical add-on purchase for next time.

I want to close with an awesome quote from Andy Dunn, the CEO of Bonobos. Andy says:

“At the end of the day, you’re not building an e-commerce company, you’re building a brand that has e-commerce as its core distribution channel.”

I love that because it means you have to think about your brand overall – you’re not running a website, you’re running a brand that has a website. And the unboxing experience is as much a part of your brand as the website.

How is entrepreneurship like skydiving? As they say, the hardest part of skydiving is jumping out of the airplane. I think entrepreneurship is the same way. I believe that the key to success in life is overcoming your fears and eliminating the excuses that keep you in your comfort zone. Action almost always brings more […]

How is entrepreneurship like skydiving? As they say, the hardest part of skydiving is jumping out of the airplane. I think entrepreneurship is the same way.

I believe that the key to success in life is overcoming your fears and eliminating the excuses that keep you in your comfort zone. Action almost always brings more fulfillment than the status quo. “Ready Fire Aim” is an expression of that ethos. I also believe it’s very applicable to entrepreneurs thinking of starting a company – the starting is often the hardest part.

Think of all the “armchair entrepreneurs” in the world – everyone has an idea. And yet nobody executes. There always seems to be a reason to delay actually starting an entrepreneurial venture. I don’t have enough startup capital. I need to refine my idea a little more. I should save some more money first. I need to finish college first. I don’t know if anyone will use it. There are one thousand and one excuses for putting off starting until tomorrow.

So why do we do this to ourselves? What is it about human nature that makes us manufacture endless justifications for inaction? I want to mention two authors who’ve written about it specifically, one classic and one contemporary.

Sigmund Freud called these nagging doubts the Death Drive, or Thanatos – the destructive force inside human nature that rises whenever we consider a tough, long-term course of action that might do good for ourselves or others. The opposite of Eros (the drive for life), Thanatos is the natural drive in all of us to give in to the status quo and seek a state of calm, non-action, and death.

Stephen Pressfield (author of “Legend of Bagger Vance” and “Gates of Fire”) has a wonderful contemporary description of Thanatos. Pressfield calls it “Resistance” in his new book “The War of Art” and defines it this way:

Have you ever bought a treadmill and let it gather dust in the attic? Ever quit a diet, a course of yoga, a meditation practice? Have you ever wanted to be a mother, a doctor, an advocate for the weak and helpless; to run for office, crusade for the planet, campaign for world peace, or to preserve the environment? Late at night have you experienced a vision of the person you might become, the work you could accomplish, the realized being you were meant to be? Are you a writer who doesn’t write, a painter who doesn’t paint, an entrepreneur who never starts a venture? Then you know what Resistance is. Look in your own heart. Right now a small voice is piping up, telling you as it has ten thousand times, the calling that is yours and yours alone. You know it. No one has to tell you. And you’re no closer to taking action on it than you were yesterday or will be tomorrow. You think Resistance isn’t real? Resistance will bury you.

So how do we overcome Resistance and accomplish our dreams? To put it simply, “JFDI” (think Nike).

People and ideas have inertia. That which is at rest tends to remain at rest, that which is in motion tends to remain in motion. I think the key to starting anything is to actually start. Take the tiniest first step. Get off the couch. Put out an ad for a web designer on Elance. Draw out a mockup in pencil. Make that first phone call. After you’ve started, I think you’ll find the second step comes much more easily. Make that inertia work for you.

The truth is that the only way someday turns into today is by getting off your butt and starting. Starting makes things real. Starting builds momentum. Starting gets you excited. Starting eliminates all your excuses and all the reasons you’ve invented in your head to rationalize your inability to overcome your inertia. Starting makes you an entrepreneur.

I also want to point out that in order to succeed with a “JFDI” philosophy, you must also excel at correcting course along the way – what some call pivoting. It is the final and most important term in the phrase “Ready Fire Aim”. Too often we all forget to aim. Most successful business are not perfect incarnations of the founder’s first business plan, they require a lot of adaptation along the way. Very rarely is it purely a brilliant concept that makes a startup successful. Success is a sustained, long term drive, and that’s far rarer than a good idea.

Twitter is a perfect example – it started as a side project inside a company called Odeo (also founded by the Twitter guys). They soon noticed that Twitter was far more popular than Odeo’s main product offering, a podcasting web app. They scrapped the Odeo idea entirely and focused all their time on Twitter, which now has over 150 million users. Good aim.

In summary, success is action plus agility. Get the ball rolling, put inertia to work for you, and correct course along the way. Jump out of the airplane. I’d like to leave you with a quote from Machiavelli that I have printed out and hanging above my desk. Hopefully it helps remind you to go out there and JFDI.

“All courses of action are risky, so prudence is not in avoiding danger (it’s impossible), but calculating risk and acting decisively. Make mistakes of ambition and not mistakes of sloth. Develop the strength to do bold things, not the strength to suffer.”
— Niccolò Machiavelli

Many of you are familiar with Tim Ferriss, author of the excellent “4-Hour Work Week“. Tim is a personal hero of mine (one of his productivity tips is mentioned previously in my post “The Urgent vs. Important Matrix“) so naturally I’ve been eagerly awaiting the arrival of his sophomore effort “The 4-Hour Body“. The new […]

Many of you are familiar with Tim Ferriss, author of the excellent “4-Hour Work Week“. Tim is a personal hero of mine (one of his productivity tips is mentioned previously in my post “The Urgent vs. Important Matrix“) so naturally I’ve been eagerly awaiting the arrival of his sophomore effort “The 4-Hour Body“. The new book promises to be “An Uncommon Guide to Rapid Fat-Loss, Incredible Sex, and Becoming Superhuman” – a bold claim indeed.

Tim has written about fitness before, posting two articles with similarly outrageous headlines on his blog – one called From Geek to Freak: How I Gained 34 lbs of Muscle in 4 Weeks and another titled How to Lose 20lbs of Fat in 30 Days – Without Doing Any Exercise. These two posts together give us a glimpse of the principles Tim fleshes out in “The 4-Hour Body”. Is it really possible that Tim has cracked the code on fitness? One year ago, I decided to find out by combining Tim’s published writings into a comprehensive fitness plan and measuring my results. My goal – to determine whether Tim’s methods actually work in real life. This is what I discovered.

Let’s set the scene – back in high school I was an athlete and in decent shape, about 6’1″ and 180lbs. After 4 years of college and too many beers, I graduated in May 2008 at 205lbs and started a job in investment banking. The next 18 months of takeout dinners and 90 hour weeks at a desk pushed me up to 217lbs, with had back pain, acne, and very low energy. I regret now that I didn’t have my body fat analyzed, but I expect I was pushing 30%. I needed to make a change, and quickly. And so in November 2009, I began “The Ferriss Fitness Experiment” to see if Tim could deliver on his promises.

The fitness plan I developed is based directly on Tim’s posts, which are themselves a modification of the Paleolithic Diet (Tim’s modified version is called “The Slow Carb Diet”), combined with exercise methods based on The Colorado Experiment. For the Cliffs Notes crowd, Tim’s methods can be summarized in 4 bullets:

Avoid white carbohydrates. If it is white or can be white (bread, noodles, rice, cookies, crackers, etc) – cut it out completely.

Don’t drink calories. No sodas or juices. In combination with the above, that also means (gasp) no beer. We’ll allow wine and hard liquor (straight or with diet soda) because a guy’s got to have a life.

Exercise to exhaustion. Two or three 30 minute high-intensity workouts are more valuable for building muscle mass than 5x weekly moderate sessions.

Diet – “Eat Real Food, Not Too Much. Mostly Vegetables.”

The basic idea behind Paleo eating is to consume only foods that our ancestors from the Paleolithic Era had access to (lean red meat, fish, shellfish, eggs, nuts, vegetables, fruit, etc), and exclude foods that developed in the more recent Neolithic, post-agricultural era (processed grains and dairy, sugar, and other “fake” foods). Focus your diet on proteins and vegetables, avoid processed carbohydrates. Volumes of literature have been written about the reasons this makes sense, particularly the ways that carbohydrates and simple sugars are metabolized – they are literally killing you by spiking your insulin, damaging your small intestines, and more. If you want to dig into the science behind how carbohydrates are digested, read this article by Robb Wolf on Tim’s blog. Robb is the former review editor for the Journal of Nutrition and Metabolism, so he knows his stuff.

One note – this is not the Atkins diet. You don’t have cart blache to eat anything as long as it’s not a carbohydrate. Ribeyes are delicious, but if you think you’re being “healthy” just take a look at an uncooked ribeye – it’s nearly all marbling (fat). Beef isn’t off limits, but be aware of what you’re eating. Hamburger meat is rarely, if ever, a good idea. Focus on lean cuts (filet, sirlion) or other lean meats like buffalo or pork.

Tim and I both make an exception to the above diet so it is both less miserable (more sustainable) and more practical. I allow for 1 “cheat day” each week when I can eat whatever I want. No only does this help keep me sane and disciplined the other 6 days, but spiking caloric intake once per week increases fat loss by preventing your metabolic rate (thyroid function, etc) from down-regulating due to extended caloric restriction.

Exercise – High Intensity, Elevated Heart Rate

Now let’s discuss exercise. The two things you’re shooting for are consistent elevated heart rate and lifts to failure. You can accomplish this with cycle training – begin with 15 minutes on the treadmill to get your heart rate up, then move around the gym lifting several muscle groups to failure, with no rest in between. Do all your sets slowly (5 up, 5 down cadence) and to failure. It will burn, but you’ll build muscle mass very quickly.

During your workouts, make an effort to focus on compound movements like squats, pull ups, bench press, lunges, etc. People avoid these exercises because they hurt, but there’s a reason they burn – all of the above target large muscle groups in your body. When your muscles are torn down and rebuild, they release testosterone, which helps build extra muscle, puts hair on your chest, and is generally beneficial for a lot of other reasons. Larger muscle groups release more testosterone. Your biceps is a tiny muscle, you’re not burning many calories or releasing much testosterone doing curls. Do an ass-to-ankles squat on the other hand, and you’re activating your entire lower body, as well as your stabilizing core.

Another benefit of a high intensity workout with minimal rest is that you can be in and out of the gym in under 45 minutes, including locker room time. Do this 2-3 times a week, and you’ll get maximum impact with minimum gym time. This was a huge benefit for me while working in investment banking, when I didn’t have the time to fit in long workouts.

The Results – Do Tim’s Fitness Methods Really Work?

So now we come to the important part – results. Do Tim’s fitness and diet methods actually work? Tim promises his methods can result in either a 34lb muscle gain or 20lb fat loss in 30 days. So how did a combination of the two turn out for me?

When I began my Ferris Fitness Experiment, I tipped the scales at 217lbs. After 3 months of Slow Carb/Paleo eating and 3x weekly 45 minute workouts, I was down to 200lbs. My skin was clear, and my energy level was noticeably higher. After 3 more months I was at 180lbs, with no lower back pain at all, and in the best shape of my life at 15% body fat. Because pictures are worth 1,000 words, I’ve included before and after shots (click the picture for full size). On the left is me at 217lbs before the start of my “Ferriss Fitness Experiment”, and on the right is me in the same outfit at 180lbs. A dramatic improvement.

Based on my own experience, Tim’s methods blow away every fitness plan I’ve ever tried. I lost 37 pounds, 4 inches on my waist, and reduced my body fat by over 10%+ in 6 months. While that’s significantly longer than the 30 days Tim promises in his posts, I recognize that I didn’t singularly focus on weight gain or fat loss – I aimed instead for general fitness and overall health by combining high intensity strength training with the Slow Carb diet. All in all, I highly recommend Tim’s methods to anyone looking to improve their health and fitness level. If the content of Tim’s blog posts on fitness so far are any indication, “The 4-Hour Body” is a must read – you can order your own copy here.

My younger brother just graduated from college this year and is getting settled into a new job, life on his own, and financial independence. Along with his first paycheck, he’s also been bombarded with a lot of new financial choices and a lot of acronyms (IRA, 401k, etc). Everyone knows they should be saving money, […]

My younger brother just graduated from college this year and is getting settled into a new job, life on his own, and financial independence. Along with his first paycheck, he’s also been bombarded with a lot of new financial choices and a lot of acronyms (IRA, 401k, etc). Everyone knows they should be saving money, but the reality is that nobody ever tells you exactly how to go about it short of stuffing cash under your mattress. This post isn’t going to be an in depth discussion of what stocks to buy or how much of your net worth to put in bonds – rather, I want to focus on the mechanics of how to organize your finances as a single, newly independent young adult in order to set yourself up for prosperity and success.

The 401k

Ah, the first decision you’re going to have to make – how much of your paycheck do you want to allocate into your 401k? The most important thing to know about a 401k is that any money you contribute is “pre-tax”, meaning that it is taken out of your paycheck before taxes are calculated. This is the first way a 401k gives you “free” money – you’re able to sock it away before the government takes a cut. The second way a 401k gives you free money is an employer match. Policies vary among companies, but most offer a match of some kind, up to a certain percentage of your salary. Always, always contribute enough to your 401k to receive the full matching amount that your employer offers – this is literally money in your pocket as an incentive to save. After you’ve received the full employer match, it’s my advice that you don’t contribute anything further to your 401k right now. I’ll explain why in a minute.

Once you’ve got some money in your 401k, you’ll be asked what type of fund you wish to invest it in. You’ll have a lot of options, but your best bet is to select a “target retirement fund”. Add 40 years to the current date, and that’s roughly the year you should hope to retire. These target retirement funds will automatically keep you in equities while you’re young for maximum return, while gradually shifting to bonds for income and protection as you age. Set it and forget it. One thing to be sure of: make sure your 401k is invested in a broad-based fund, not exclusively in the stock of your employer. That’s a lot of eggs in one basket – just ask anyone that spent their career at Wachovia or Bear Stearns.

The Roth IRA

So now you’ve saved a few percent of your paycheck in your 401k (just enough to receive your employer match), but you still have some extra cash remaining that you can afford to lock away for retirement. Your next option is an account called a Roth IRA. Contributions to a Roth IRA are “post-tax”, meaning they come out of your wallet after you’ve already paid income taxes to the government. However, the big benefit to a Roth IRA is that once you’ve contributed, your money grows tax free, forever. That means when you retire, you can withdraw the full amount without paying a dime of taxes on the money you contributed OR on your capital gains. That means you never pay any taxes on all the compounded interest your money made you over the years. And after 40 years of compounding, that’s significant.

You can open a Roth IRA with nearly any investment company (Fidelity, Charles Schwab, TradeKing, and many more), though it may be easiest to use whichever company your employer uses to administer your 401k. There are two major rules regarding Roth IRAs – 1.) You may contribute a maximum of $5,000 each year. You can do this all at once or over the course of the year, but your total contributions may not exceed $5,000. And 2.) You may only contribute to a Roth IRA if you make less than $105,000/year. While this may not be an issue for you now, it hopefully will be in the future, so get those contributions in while you can so they can grow tax-free over the course of your career.

In order to contribute to your Roth IRA, write yourself a check and mail it to your investment company; they will deposit it in an account in your name. The best way to do this is to mail in a check for $416.66 each month ($5,000/12). This will help you in your budgeting, and also keep you disciplined.

Your Checking Account

Speaking of writing checks, now that you’ve contributed to your 401k and Roth IRA, it’s time to make sure you have some “walking around money”. For that, you’ll need a checking account. A checking account provides you with quick, easy access to your money through ATMs, checks, and a debit card. This is the money you’ll use to pay your rent, cover your tab at happy hour, and buy that electric guitar you’ve always wanted.

You can get a checking account from any bank in the country, but far and away the best choice is Charles Schwab Investor Checking. Their two most attractive account features are 0.5% interest (compared with 0% at most banks) and unlimited, free use of any ATM in the world. I can’t stress this second point enough – no more wandering around town to find a specific bank’s ATM, no more paying a $3 “convenience fee” at the gas station. It’s all free, anywhere, all the time. I want mention that I’m not paid by Schwab and that’s not a referral link. I just think they’re awesome (and have been a customer for 4 years myself).

So now that the money is streaming in, should you just let it pile up in your checking account? My advice is to keep about $5,000 in your checking account for day-to-day use and personal spending, and get the rest out of there so it’s mentally earmarked for saving or a rainy day. So where should you put any left over money after your 401k and Roth IRA are maxed out, and you have $5,000 in your checking account?

Investing in Mutual Funds and Stocks

If you still have money left over, it’s time to think about investing in individual stocks or mutual funds. Lots of people that are smarter than me (and many who are not) have written miles of text on which stocks and funds you should and shouldn’t buy (caveat investor), so I’ll avoid telling you what to buy and focus on how you buy it.

You’ll need a brokerage account. As with your checking account, there are countless firms that can give you what you need here, but be aware of fees. If you’re only investing a few thousand dollars, commissions can significantly eat into your profits. That’s why I want to make another recommendation – use TradeKing as your broker. Commissions are only $4.95 per trade (the lowest I’ve found anywhere), and they’ll let you trade stocks, options, and mutual funds. Again, they’re not paying me a dime – I just genuinely think they’re the best option.

Once you transfer some money into your brokerage account, it’s time to buy some stocks. Pick up the Wall Street Journal, read the news, and educate yourself – this is a good chance for you to start to learn about investing while the stakes are relatively low. Think long term – remember, you’re investing not trading. Be aware of capital gains tax laws – any profits from a position you hold for under 1 year are taxed as normal income at your normal tax rate (which could be as high as 30%). But if you hold a position for longer than a year, you pay only the long term capital gains rate of between 0% and 15% (depending on your tax bracket). So keep that in mind when you’re tempted to trade quickly in and out of stocks.

If you don’t have the time, knowledge, or inclination to pick individual stocks, you can use your TradeKing account to purchase nearly any of Vanguard’s 100+ index funds – all you need are their tickers, which you can find and research on Vanguard’s site here. While everyone’s investment objectives are different, if you want a set it and forget it index fund, take a look at VEIPX, VDEQX, VWINX, or VGSTX.

In Summary

So there you have it – a complete blueprint to getting organized financially in the real world. Let’s sum up the structure we’ve set up for you:

Brokerage Account — Any additional savings are invested in stocks or mutual funds for the long term

If you’re able to follow the blueprint I’ve laid out above, you will not only be able to sleep well at night knowing you’re doing the right things with your money, but also will have set yourself up with a framework to save responsibly over time and build wealth in the long term.

Note: I also cross-posted this guide last week over at Punch Debt in the Face, a great blog about personal finance and budgeting with awesome stick figure illustrations.

I recently made a personal commitment to read more books, so I turned to the lengthy “Saved Items” cart on Amazon that I had been filling with friends’ recommendations for the past 18 months and ordered several titles. The first to arrive was Dr. Robert Cialdini’s fascinating and bestselling book “Influence: The Psychology of Persuasion”, […]

I recently made a personal commitment to read more books, so I turned to the lengthy “Saved Items” cart on Amazon that I had been filling with friends’ recommendations for the past 18 months and ordered several titles. The first to arrive was Dr. Robert Cialdini’s fascinating and bestselling book “Influence: The Psychology of Persuasion”, which had been recommended to me by several friends, acquaintances, and subject matter experts, including Tim Ferriss, Guy Kawasaki, and Noah Kagan.

In is book, Cialdini (formerly a nationally renowned professor of marketing at Arizona State University) describes Six Principles of Influence which encompass every negotiation tactic and act of persuasion utilized in board rooms, living rooms and farmers markets the world over. That is to say, these are the six “puppet strings” that all of us tug at to gain compliance from those around us. They are vastly and widely applicable, from business negotiations to marketing to disagreements with your spouse. If you look closely, you’ll notice that all of us employ them every day to achieve our goals and influence those around us. Many of them are particularly applicable to entrepreneurs, so I’ve attempted to crystallize the essence of the six principles and share them below.

Cialdini’s Six Principles of Influence

ReciprocityThe concept of reciprocation is pervasive in our society. It’s one of our established social rules – if someone does us a favor, we do them one in return. If someone invites us to a party, we put them on the list for our next gathering. It is a fundamental principle that has been ingrained in all of us since the earliest days of human society. It is the concept of reciprocity that allowed our ancestors to freely share food, skills, and protection with confidence that the resources would be returned in kind. The shared web of interdependency and obligation allowed for the division of labor and specialization of skills – reciprocity was truly an evolutionary advantage.

Accordingly, it’s no surprise that our modern culture has socialized us all to carry a sense of indebtedness to those that help us first – the “Golden Rule”, Karma, and “Pay It Forward” are all reciprocal social concepts that are instilled in all of us from a very young age. We assign harshly negative labels to those that do not follow the cultural norm – mooch, freeloader, leech. It is no wonder that whenever another person does us a favor, we feel obligated to respond in kind. And so, our natural reactions can become a powerful influencer when exploited. Let me give an example.

I experienced the reciprocity principle first hand this winter on a ski trop to Breckenridge. Our group pulled into the parking lot and began to unpack our equipment. As we did, a man approached and made a show of welcoming us to the mountain and complimenting our gear. He then handed out “free” Breckenridge wool hats to each one of us. After receiving our thanks, he quickly followed up the gifts with a request for a $10 donation to a charity he was representing. Three of the five in our group immediately ponied up, and the man went on to the next unsuspecting car. I later asked my friend what charity the man was representing. His response – “No idea, but hey – free hat!”

The above is a perfect example of reciprocity in action – my friends felt compelled to donate to the man’s charity because they had first received the “free” hats, regardless of the nature of the charity’s work or whether they even needed or wanted a hat.

ConsistencyThe consistency principle states that “Once we have made a choice or taken a stand, we will encounter personal and interpersonal pressures to behave consistently with that commitment. Those pressures will cause us to respond in ways that justify our earlier decision.” In layman’s terms, this means that once we have made a small commitment or statement (especially publicly), it becomes part of our self-identity. For example, if I can get you to make the statement “I love discovering new music” (and who doesn’t), you’ll be more than twice as likely to pull out your wallet when I then ask if you’ll buy my band’s CD. Because not buying the CD would be inconsistent with your previous assertion that you enjoy new music (a feeling known as cognitive dissonance), you feel compelled to purchase the album.

Social ProofOf all the six principles, I believe we experience and are influenced by social proof most strongly and most often. Social proof refers to the phenomenon that we are far more likely to do or believe something if we have seen others like us do or believe it first. Cialdini cities several studies in the book, including one that analyzed reclusive pre-school children. Researchers showed each reclusive child videos of other children their age observing a social activity, then actively joining into the activity. At recess the next day, the formerly isolated children immediately began to interact with their peers at a level equal to that of normal children in their schools. The principle of social proof illustrates that we often copy behaviors simply because if many others are doing something, we believe it must be the correct thing to do. The children in the experiment perceived that being social was the “normal” thing to do, and which gave them the courage to alter their own behavior. The principle of social proof is applicable to far more than elementary school behavior, and there are further examples in the book that examine social proof as an explanation for buying decisions, mass suicide, and traffic jams.

Entrepreneurs also run head-long into the social proof principle when raising capital for the first time. Many venture firms are reluctant to invest until they hear that others have invested as well. If you’re able to secure a commitment from a big name VC firm like Sequoia or Khosla, you’ll probably not have much difficulty filling out the rest of your funding round. This is due to the principle of social proof – if others are willing to invest, it must be a good deal. Similarly, when you go to raise a second round of capital, any new investors will want to see participation from the firms that initially invested in your Series A. After all, if your original investors are unwilling to commit further capital, why should anyone new invest? This is often called “The VC Signaling Effect”, and has been discussed in depth by both Chris Dixon and Mark Suster.

AuthorityThis one is fairly self explanatory – if someone in a position of authority commands you to perform a task, you are likely to comply. This was proved out in the now infamous and controversial Milgram Experiment. You can read the link for further detail, but essentially Milgram proved that despite moral objections and severe emotional distress, subjects were still willing to administer what they thought to be lethal electric shocks to others when commanded by someone in a position of authority. Milgram used his studies to explain the brutal actions of certain German soldiers during the Holocaust, committed despite stated strong moral objection by the soldiers themselves.

LikingThis one seems obvious, but it’s very true – we tend to comply with requests from people who we like (friends, family, etc). Tupperware Corporation has exploited the liking principle to great success; each day thousands of people invite their friends over for tea and finger food, only to eventually ask them to purchase some Tupperware at the end of the party. By relying on the obligation we all feel toward those we like, Tupperware has built one of the largest direct sales organizations in history. In fact, Tupperware no longer sells in retail stores at all, relying almost solely on parties and the liking principle to generate over $2 billion in revenue each year.

However, it’s not only your friends and relatives that can exploit the liking principle. The liking principle also encompasses arguably the most powerful persuasion method of all – attraction. An attractive, flirty stranger can create the same persuasive “liking” effect that your best childhood friends enjoy. That’s the reason nearly every pitchman, model, and TV commercial family is good looking, and all those Bud Light commercials feature women in bikinis. The more attractive the person trying to gain our compliance is, the stronger “liking” that they create, and better chance they have of persuading us. “Liking” is the principle that explains what Hollywood has known to be true for years – sex sells.

How many times have you seen slogans like those above plastered on store windows or shouted by TV infomercial salesmen? Probably more than you can count, and it’s because of the scarcity principle. We are far more likely to agree to a request if we believe (falsely or correctly) that we will not have another chance in the future. Fear of losing an opportunity can be a very powerful motivator. It is generally true that things which are difficult to obtain are better than things which are easy to obtain – thus we are subconsciously conditioned to use scarcity as a proxy for higher value. Cialdini mentions a used car salesman that always made sure more than one interested buyer was present whenever he was selling a car. The competition increased anxiety in both buyers and made the car seem that much more attractive, which without fail increased the price the salesman got for the car.

Cialdini’s book provides far more detail on the above principles than I have included here, including numerous studies and examples ripped straight from current events that illustrate each principle in action. I’d recommend Cialdini’s book to any entrepreneur, product manager, or marketer, as well as anyone looking to be more persuasive in general. It’s an absolutely fascinating read.

I have begun to think and write about China more and more lately; there is such an incredible opportunity across the Pacific that seems largely unobserved by a majority of Americans. The Chinese economy and population base is so large and modernizing so rapidly, and has transformed from 3rd world to 1st world in a […]

I have begun to think and write about China more and more lately; there is such an incredible opportunity across the Pacific that seems largely unobserved by a majority of Americans. The Chinese economy and population base is so large and modernizing so rapidly, and has transformed from 3rd world to 1st world in a matter of decades (that same evolution took us hundreds of years here in America). As you can see in this chart from Google, China’s internet adoption has blown past the United States, both in terms of growth rate and sheer number of users. And they’re still at only 20% internet penetration. Mobile phone penetration is actually higher than internet penetration, approaching 60% depending on what study you read – that’s over 500 million mobile phones. This in itself is an interesting dynamic, as it seems that in China the mobile phone (rather than the PC) is the primary method of internet use and communication. As I understand it, this is a result of the relative difficulty and expense of getting a computer and home internet line installed – particularly in rural China, which does not yet have the widespread and developed communications infrastructure that we enjoy in the United States. Coupled with pervasive and cheap mobile phone service and a proliferation of advanced smart phones, the mobile internet has become the single point of connectivity for millions of Chinese. However you measure China’s growth, it doesn’t take an economist or venture capitalist to see that the pace of technological change, adoption, and transformation in China is unlike anything experienced in America or anywhere else.

I saw a statistic the other day that by the end of 2010 China will have more mobile internet users than there will be people in the United States. That’s staggering. There arecountlesscompanies with tons of VC hype and astronomical valuations climbing all over each other to try to capture even a sliver of the ~90mm user U.S. mobile internet market. And yet there is a Chinese market that is orders of magnitude larger and remains relatively unaddressed by America’s top online properties.

For example – Facebook has experienced tremendous user growth outside of the United States, adding almost 10 million global users in March 2010 alone. Below you’ll see a top 10 table of Facebook’s growth by country in March – millions of users were added in Asian countries like Indonesia and the Philippines, and according to Facebook nearly all of those new users access the service exclusively on mobile devices (wow). And yet despite the obvious resonance with Asian consumers, Facebook remains conspicuously absent from China due to a near total blockage by the Chinese government.

Not to say there aren’t very significant and well established Chinese social networking players (including Tencent Inc., which is debatably the largest social network in the world) but I just find the under representation and seeming indifference of so many American Web 2.0 properties to be surprising. So many of today’s startups seem laser focused on attacking the United States mobile market, and are at the same time so haphazard in their Chinese strategy.

I do understand that there are significant regulatory and cultural hurdles to clear when moving a U.S.-based service into the Chinese market. In addition to censorship and restrictions on foreign business ownership, there is no guarantee that a product that has been successful in the United States will resonate with Chinese consumers. Many of today’s social media and self publishing centric products and services simply aren’t workable in a country that does not allow the free flow of information or exchange of ideas that we enjoy here in America.

It seems that the swell of Chinese internet users (on mobile devices especially) are like a tsunami being held back by poor access to broadband and isolated by the dam of government censorship. Though there are millions of users already climbing over and around the dam (with things like proxy servers and other methods of circumventing the “Great Firewall of China”), I expect that the real wave will come over the next several years as the government finds it increasingly difficult to censor its citizens, and increased broadband penetration plugs more and more Chinese into the web. As China comes online in a bigger and bigger way, it’s going to be harder than ever for American startups and social media players to compete without confronting the tsunami head on.

In the 19th and early 20th centuries, the American “Wild West” was a place of great opportunity and great adventure – rapid development, gold rushes, land grabs, and a booming population provided an opportunity for enterprising young men and women to strike out on their own and “grow up with the country”, as the famous […]

In the 19th and early 20th centuries, the American “Wild West” was a place of great opportunity and great adventure – rapid development, gold rushes, land grabs, and a booming population provided an opportunity for enterprising young men and women to strike out on their own and “grow up with the country”, as the famous quote goes. The West took on an almost mythical aura as a place where anything was possible and success was limited only by ambition.

Even after the American West had been developed, the United States has remained the epicenter of the world’s economic growth and a proverbial “land of milk and honey” for immigrants from across the globe. The best and brightest students from countries the world over aspired to one day travel to America to make their fortunes and pursue the “American Dream” – and countless many have done just that. However, while the western world has been the place to be for the past 150 years, I’m beginning to think that the next 150 may see a stark reversal of the compass needle.

Take a look at the picture that accompanies this post. That’s Shenzhen, China – the biggest place you’ve never heard of. With some 14 million residents, it’s far bigger than New York City and remains the fastest growing city in China. Not only is Shenzhen exploding, it’s young, smart, and hungry. It’s estimated that 20% of China’s PhDs work in Shenzhen, and the average age of its citizens is less than 30. Thanks to billions in foreign investment, it’s young and educated population, and its status as the first of China’s Special Economic Zones, Shenzhen is also the #1 export center in China, accounting for 22% of the country’s total. All of this is particularly striking when you realize that less than 30 years ago, Shenzhen was nothing more than a sleepy fishing village with a population of 30,000 (that all of this growth has coincided exactly with the establishment of the special economic zone and a capitalist economy is best left for a separate discussion). Shenzhen has also developed as a manufacturing powerhouse, and is the origin of nearly every shiny consumer gadget you own with “Made in China” stamped on the bottom. And if you’re reading this on a Mac, iPhone, iPad, Thinkpad, Dell, Kindle, or HP (among many others), that includes the hardware your browser is running on right now.

John Biggs from CrunchGear spent several weeks in Shenzhen and wrote an excellent series entitled “CrunchGear in China: Where Tech Sausage is Made”, which explores the massive consumer goods (mostly electronics) manufacturing industry that has catapulted Shenzhen to prosperity and global prominence. CrunchGear paints an incredible portrait of the Chinese culture and the efficiency with which they conduct their manufacturing. If you have some time to read through them, they provide some awesome perspective on the seething, dirty, and ruthlessly effective economic powerhouse that’s growing up in the East. The articles are here: Introduction, China the Factory, Getting from There to Here, The Ex-Pats, Shanzhai.

So for all the reasons laid out above (and even more that I’ll elaborate on in a future post), I see the East as having many of the same characteristics that made the American Wild West so appealing – rapid development, a population boom, and a modernizing economy. And although the modern day Chinese gold rush has already begun, I can’t help but think there is still a vast opportunity in East Asia for those willing to make the leap and “grow up with the world”.